Joan and Pat Clair are sisters who each own and operate shops selling the latest electronics in neighboring towns. They decide to have a contest to see whose shop can be more profitable for the year. At year-end, Joan's records show sales of $210,000,

Question

cost of goods sold of $110,000, and operating expenses of $42,000. The records of Pat's shop reveal sales of $216,000, cost of goods sold of $124,000, and operating expenses of $38,000. Pat's shop also had other revenue of $6,000 received for allowing the shop to be used in taping a television show. Each sister claims to have won the contest. Provide explanations as to why each would think so, and then name the winner

Answer 1

Joan believes she won the contest because the operating income of her shop was $58,000, compared to the $54,000 operating income of Pat's shop. Even though Pat's net income is $2,000 higher than Joan's, the $6,000 of other revenue did not come as the result of the buying or selling of merchandise and would not be expected to occur again.

Pat argues that her shop posted higher sales than her sister's shop and her $60,000 "bottom line" net income is higher than Joan's $58,000. However, because $6,000 of Pat's earnings were not from operations, the more successful store and the bragging rights as the contest winner belong to Joan.